Device Prom Song: Looks Like We Made It

Full article reprinted from Start Up - February/March 2010

A year ago, things looked bleak everywhere, including devices. But investors and executives battened down the hatches, tightened their belts, and adopted every other conceivable austerity-tied cliché. Things now are beginning to look upa little. Read more...

Device Prom Song: Looks Like We Made It

Full article reprinted from Start Up - February/March 2010

A year ago, things looked bleak everywhere, including devices. But investors and executives battened down the hatches, tightened their belts, and adopted every other conceivable austerity-tied cliché. Things now are beginning to look up…a little.

Over the past year, firms that invest in devices raised funds that will commit more than $1.5 billion to the sector over the next three to five years, proving venture capitalists can raise new funds.

In 2009, medical device companies closed more financings than in 2008 or 2007, proving companies can get the capital they need to survive.

Those same medical device companies, however, have raised less capital than companies in 2008 or 2007, proving venture capitalists are being careful with their capital.

The IPO window is no where to be found, but strategic acquisitions are being done, proving exits do happen. But those providing rich, venture-style exits are few and far between.

Eighteen months ago, after the world's economic house of cards collapsed, many in the device industry shifted into damage-control mode. For venture capital investors, triaging was the practice of the day as partners picked through their portfolios, with an eye toward identifying which companies lived and which would be shut off from any further help, aka capital. Chief executives, meanwhile, down-shifted operations, preparing to get by with very little new capital, if any at all. The medical device industry, in short, was preparing for the worst: the onset of another dreary period in which capital and exiting opportunities would be scarce.

Each of these measures was done with the idea of surviving. ( See "A New Chapter for Device VCs?," START-UP, March 2009.) After all, the global economy had teetered at the brink of collapse just a few months earlier. The Obama administration seemed intent upon reforming the health care system – often a code word for cutting payments for care, and in this case instituting a heavy tax on medical device companies – and the paths to exiting were longer than before, if they were open at all. VCs were on their heels. Companies' executives arriving at meetings to pitch new investments found themselves facing partners who were focused more on conserving capital for existing investments, soothing their limited partners, and hoping they themselves would have a job once the dust from this economic explosion settled.

Too often, an overabundance of good or bad makes a bad situation look far worse. A year ago, many questioned the validity of the venture model – not exclusively in devices, of course – creating a bit of hysteria. With the passage of time come perspective and acceptance to the new economic reality: things are different, but not as bad as we feared they'd be. Today, venture capitalists, device executives, and even limited partners still, for the most part, see the same sound foundation in medical device investing. People are getting older, and sicker, feeding a demand for therapeutic devices. Larger medical device players simply don't innovate well and rely upon entrepreneurs and device investors to develop the next generation of products to fill their pipelines. And venture capitalists and entrepreneurs are simply good at their jobs, identifying opportunities to create new potentially game-changing devices such as those acquired by Medtronic Inc., Abbott Laboratories Inc., and Johnson & Johnson over the past year.

- Tom Salemi

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Companies mentioned in this article:

Abbott Laboratories Inc.

Biogen Idec Inc.

Interlace Medical Inc.

Johnson & Johnson

Medtronic Inc.

ReGen Biologics Inc.


About Start Up

No publication reviews leading edge companies and technology better than START-UP. Each issue of START-UP profiles the most important new product companies, identifies the hottest technology areas, reviews funds flowing into private companies and investment trends, and reports on university tech transfer licensing. Industries covered: pharmaceuticals, biotechnology, medical equipment & devices, and in vitro diagnostics.